Fortis (TSX:FTS) picked up a new tailwind in recent days. Investors who missed the latest pullback are wondering if FTS stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and total returns.
Fortis share price
Fortis is up 11% in 2025 and has gained 28% in the past year. At the time of writing, the stock trades near $66 per share. The 12-month high is around $67.50.
Fortis and other utility companies use a lot of debt to fund their growth projects, which can cost billions of dollars and sometimes take years to complete. Rising interest rates in 2022 and 2023 drove up the cost of borrowing. This pushed up debt expenses on variable-rate loans, which can cut into profits and reduce cash available for distributions. The sharp increase in rates is the reason Fortis saw its share price slide from $65 to $50 in 2022.
New cuts to interest rates in Canada and the United States in 2024 drove most of the gains in FTS stock last year. The extension of the rally in 2025 is likely due to investors moving to utility stocks that will not be impacted by tariffs. Expectations for additional rate cuts in Canada and the United States could also be at play.
Growth
Fortis hasn’t completed a major acquisition for several years. Still, the company is working on a $26 billion capital program that will boost the rate base from about $39 billion in 2024 to $53 billion in 2029. As the new assets are completed and go into service, the increase in revenue and cash flow should support planned annual dividend growth of 4% to 6%. Fortis has additional projects under consideration that could be added to the capital program to extend the dividend-growth outlook.
Falling interest rates might also ramp up consolidation in the utility sector. Fortis has a strong track record of making strategic purchases to expand its asset base. The last two acquisitions Fortis made were in the United States. The company currently has assets in Canada, the U.S. and the Caribbean. The businesses include natural gas distribution utilities, power generation facilities, and electricity transmission networks. Nearly all the revenue comes from rate-regulated assets, so cash flow tends to be predictable and reliable.
This is one reason Fortis has been able to raise its dividend in each of the past 51 years.
Risks
Tariffs might drive a new spike in inflation in the United States. This could force the central bank to put rate cuts on hold or even raise interest rates again. If that happens, Fortis and other utility stocks could face new downward pressure.
Should you buy Fortis now?
Near-term volatility is expected in the broader market, and another sharp pullback is possible for the stock. That being said, Fortis should be a solid long-term pick at this level. Investors might want to take a half position and look to add on any new weakness. At the current share price, you get a decent 3.7% dividend yield with good dividend growth on the horizon.
